Is the Russian pharmaceutical market on course for rapid growth, or will it remain a moribund market plagued by stagnation, decay and persistent drug shortages?

The Russian pharmaceutical market is now in a precarious position. Throughout 2017, we were inundated with articles that praised the prospects of pharma in Russia. “Strong growth potential” and predictions of the Russian pharma market being worth $38 billion by 2021 were the cause for more than a few headlines, says Adam Muspratt for Pharma IQ.

Seemingly, the Russian pharmaceutical bear was awakening. But, we’re [mostly] through 2018 and it’s still somnambulant. The fundamental problem, unsolvable up to the present, is that the Russian pharmaceutical market has several gaping wounds which are linked to domestic and foreign affairs.

The following is a history, in brief, of the makeup of the Russian pharma market. It is well researched and supplied in large part by Pharma IQ.

Over the last two decades, Russia’s pharma market sat on the sidelines–outside most of the rest of the world. But this may change in the coming years. It is expected to be worth $36.61 billion by 2021, according to leading business reports. This represents an annual compound growth of 13%, which should set it firmly within the top 10 largest markets in the world. Russia’s domestic drug market is predominately made of generics, which amounts to around 70% of its entire pharmaceutical framework.

There two main markets: The commercial market and the state government procurement market. The commercial market accounts for a whopping 85% of overall volume. Suffice it to say, Russia has historically been an importer of drugs, predominantly European drugs. But this is a trend that officials are fervently looking to change.

Is Russia’s pharmaceutical market growing?

In recent years, the Russian economy has been in the doldrums. Since 2013, the Russian ruble has collapsed, resulting in currency devaluation, economic slowdown, and a significant decrease in purchasing power among the general population. A spate of sanctions from foreign states has also wrecked the economy, which induced a reduction in pharmaceutical imports to Russia. Typically, this would raise fears over the stability of the country’s entire pharmaceutical market. But there has been a silver lining.

The economic downturn has given the government motivation to push through legislative action to give the region’s pharma market more self-sufficiency. One of the chief programs was the Federal Drug Reimbursement Program which provides citizens free access to over 350 pharmaceutical products. In addition, revamped rules for the storage and transportation of medicine ensured that third-party contractors were under more scrutiny to keep warehouses up to minimum safety standards.

The Russian Ministry of Trade has also issued a state program to improve domestic healthcare in Russia in general. At the moment the domestic share of Russia’s pharmaceutical products makes up 27% of the total. The government aims to increase domestic share to 50% by 2020. This has led to the revitalization of the industry and an overall positive effect of domestic drug production.

Therefore, the chief problem the Russian government wants to tackle is the reliance on imports. To address this, the government introduced the Pharma 2020 strategy way back in 2011. The plan aims to improve the competitiveness of Russian drugs, improve the training of doctors and encourage the development of new medicines. Easier said than done, IQ Pharma notes. A combination of economic sanctions and the isolationist stance adopted by the Russian government has had unintended adverse effects on the pharmaceutical industry. For example, government restrictions on set price points for imported drugs have left many Russian hospitals temporarily without vital medicine or equipment. This issue is compounded by the fact that the overwhelming majority of hospitals are state-owned.

Russian citizens with rare illnesses are at risk as their cures can only be found outside of Russian borders. The probability of Russian manufacturers making their own drugs for rare illnesses is unlikely, as the Russian pharma procedure requires extensive human testing prior to production and distribution. Rare diseases intrinsically lack a pool of patients upon which to test treatments.

In 2017, Russia passed the National Plan for Development and Competition. As part of the plan, the Russian government may allow the production of a drug or medical device without the consent of the patent holder. The plan states that it will only pertain to matters of national defense and security and the protection of human life. However, the potential for misuse has been a source of concern for many American pharmaceutical companies.

Pharmaceutical products in Russia are placed on a priority list that determines their costs. While this may sound beneficial to the people receiving the drugs, it also means that many pharmaceuticals are delayed and, in many cases, fail to reach the patients who desperately need them.

The government does negotiate drug prices with manufacturers so they are inexpensive for even the lowest earners. Meanwhile, the drug manufacturers naturally want to protect their own interests to make a profit. As a result, some manufacturers are priced out of the pharmaceutical market. This scenario is exacerbated by the fact that new manufacturers rely on selling a certain amount of product at a set price. When the government lowers the price, the manufacturer may be forced to stop shipping the drug to Russia.

Russian pharma in 2019

For pharmaceutical companies hoping to profit from the Russian market in coming years, there are several areas to keep an eye on.In August of 2017, the Russian government demonstrated its position on private companies by merging the manufacturer, Marathon Group, and the state run, Rostec. This is just one small example of Russia’s commitment to create a self-sufficient pharma market and, for better or worse, represents the future relationship between public and private interests.

The ramifications of such action would be huge since the US accounted for 13% of Russian pharmaceutical imports in 2017. By contrast, any Russian counter sanctions will apply to pharmaceuticals that can easily be replaced with local products–especially in the US. Mindful of the quality gap and the frequency of drug shortages, however, Russia’s ability to rapidly replace imported drugs without harming its own citizens would be daunting, if not outright impossible.